Enterprise Technology By Phil Edholm

Newer: Wall Street WAN Managers to Eliminate Routers?

Comments

1. Phil,

   Glad to see you are still at nortel. They need you. I had the chance to talk to you a couple of times in the late 1990s and 2000/2001 and I was impressed with your vision and directness.

   My question is why is your analysis so binary? I think it necessarily both, depending on the context of the application and the organization. The tricky part is managing transitions and the variety of blends. - (tracking back to the discussion on John Roese’s blog about strategy, tactics and the importance of timing tactical decisions.)

   I have said it before and I will say it again; trying to manage a horizontally integrated network with a vertically siloed management structure is problematic. My observation is that a companies network (enterprise or carrier) reflects its organizational structure and vice-versa. If a company has a traditional hierarchical organization, then that is what their network will look like and the network will be a “platform” for vertical application silos. OTOH, if the organizational structure is flat, the network will be much more layered and the network and it’s applications will be more integrated.

   Yes, I believe MS, Cisco and IBM and others will be competitors and partners at the same time. Sort of like it is today, but much more intense. I also believe that some of these companies are/will be too large to compete effectively and the right tactic may be to break apart some of the logical and profitable entities.

   August 16th, 2007 at 11:37 am by many

2. I agree that I treated this as black and white when in fact there will be a thousand shades of grey. The analysis was made “binary” in the interests of shedding light on the issues and creating more contrast. The key issue is that the need to control that central ground from a revenue, margin and account control level will begin to eat away at what were perceived before as the logical “levels” of cooperation. For example, as the front office packet network and the back- office SAN network merge together, further extended by virtualization (at storage, processing, and network) levels, the control of that resource structure changes. This is true form a technology, product, and organizational (both inside the enterprise and the vendor). So companies that used to see themselves as cooperators in a “eco-system” now become competitors. In the auto industry, the transition from separate chassis and coach builders being in to a vertically integrated companies changed the industry in a similar way.

   It will always be a push and pull between the different elements, but it is interesting to understand that both sides are coveting a lot of the same things.

   Finally, Steve Ballmer and John Chambers had an interview Monday that I thought was interesting. They spent 45 minutes explaining how they were looking to a sophisticated model of competition. In fact, I think the competition word was used at least twice as often as the partner word. Further, neither seemed to indicate it was strategic to them, but rather in response to customer concerns. It is interesting to check the blog comments about this as well. One observation is that immediately before the war or the celebrity divorce there is almost always a last photo op where the players express their devotion to their relationship and peace in our time. Almost invariably this is the last event before the separation/divorce or more open conflict.

   August 21st, 2007 at 5:13 pm by Phil

3. Hello Phil,

   The interesting thing to me about the Cisco story is what they continue to tell the street: “The power and intelligence is IN the network.” Well, of course it is…but where did that intelligence come from and what makes it valuable? Is that intelligence in the form of customer data derived from an application, or in the form of value added services such as VoIP, firewalls, IDS, or email/vmail? Oddly, when we dig a little deeper into that question we could quickly come to the argument that all of these forms of intelligence are derived from software. VoIP systems, vmail, email, firewall, IDS, and authentication databases all run in software code, so the real question to me is where is it the most economical, manageable, and scalable for that code to reside? The answer may be that these services are best delivered through virtual servers (potentially MSFT servers?) running across a geographically dispersed global infrastructure. Another answer may be that some (not all) of these services should be delivered through a hosted service to enjoy economies of scale and improve availability.

   What is apparent to me however is that while Cisco may have tremendous marketing, innovation, and services, they still cannot provide the reduced cost model of using common off the shelf hardware and virtualization services for application delivery. The network also has no idea how to inspect my real-time data if/when the application natively encrypts it; so this intelligence must be native to the application.

   It is true that networks are continually becoming smarter (PBT), faster (10G), and more reliable (SMLT) which allows mobility applications to thrive. However, these thriving applications are most commonly being written for Windows, linux, Unix and Apple by the vast majority of the development community…not for proprietary networking vendors.

   GC

   August 21st, 2007 at 5:28 pm by GC

4. I have seen strongly entrenched hierarchies survive pretty compelling CapEx, OpEx savings or competitive challenges. In fact, the cause of most failed network deployments that I have seen can be traced to loss of support/will from the management. Control of the resource centers might change, but they change from one silo to another not to some newly created horizontal organization. I am saying I do not believe there is a compelling enough reason (external or internal) for very many companies to force this change (yet).

   This is why I think that at the moment, telecommunications technology is somewhat less important than inside out understanding of the target business. This understanding leads to the consultive relationship and the understanding of when the shift toward a flatter structure will occur (and how fast).

   It is also important to understand the external forces such as regulatory , political leadership changes or shifts in technology specific to that business that might provide the impetus for organizational (and transitively, network) flattening.

   On your second point, I agree that the landscape is changing but I also think as many new cooperative “eco-systems” are being created as there are new competitive relationships.

   So, I think we are saying the same thing when you say “It will always be a push and pull between the different elements, but it is interesting to understand that both sides are coveting a lot of the same things.”. I think the difference in our perspective is that you are implying that there is enough technological change to impel a dramatic organizational change and I believe that change will be a lot slower and less dramatic in most business verticals (evolution rather than revolution).

   I completely agree with your take on the ms/cisco news conference. It was a bit like watching to fighters trying to psych each other out before a fight. As you seem to be saying (and if you are, I agree) the space between the application and the hardware is growing and both companies see this as an opportunity. Which is a good thing because at least they are seeing better places to invest their considerable war chests other than stock buy backs.

   August 22nd, 2007 at 10:51 am by many

5. So CISCO team up with Msoft to, so where does that leave the ICA considering you cost about 3 x as much as cisco?

   August 22nd, 2007 at 7:19 pm by Jeff

6. Great comments from all. I was thinking about a separate blog on the Monday event, but you have all captured how forced it was, so I may not.

   In response to your post Jeff, I was actually saying just the opposite, that this is the beginning of the end of a “meaningful” partnership between Cisco and Microsoft. If you listen carefully to the interview, it becomes obvious, as Many comments above (I love the psyching out comment, watching Chambers trying to spin Balmer’s comments was priceless). It becomes hard to partner when you are always trying to figure out if you are really competing.

   As to where it leaves Nortel and ICA, the answer is……….in a WONDERFUL position. The fact that Cisco asked Microsoft to have the Monday meeting is an indication they are feeling the competitive effect of ICA. Also, Gartner dropped Cisco out of the leader quadrant in their latest Unified Communications Magic Quadrant report (just out). In fact, of the three companies Gartner puts in the leader quadrant (Nortel, Microsoft and Alcatel-Lucent), Nortel is shown as the leader in vision. I believe this is a reflection of how Nortel’s overall UC vision is tight on track and how ICA represents the path to Unified Communications for many organizations that see Microsoft as critical to their business competitiveness.

   I am not sure where you are getting your data on cost of solutions. In the ICA systems, the direct SIP integration of converged desktop solution with the Nortel CS1K assures optimal cost. That is one reason Nortel is winning big deals all around the world in conjunction with Microsoft and ICA. As to the data network, the Nortel solutions have higher availability, manageability, scalability, and lower cost. Over the past 3 years, when there is an equal comparison of the solutions, Nortel virtually always wins. I will talk a bit about some of the architectural values that drive the value.

   Finally, I think you may have answered your own question in your post. Your personal view of Cisco obviously deflated as you wrote …..they went from a big “CISCO” at the beginning of your post to a little “cisco” at the end. You saw they were losing relevance literally as you were writing. I guess this could be seen as a return to the old days when “cisco” was branded without a capital letter at the beginning………

   Thanks for the post Jeff, it is great to be able to address these kind of questions as I believe we are often the best kept secret in the industry.

   August 24th, 2007 at 5:54 pm by Phil

7. Phil,

   Just a couple more points. I cannot emphasize enough that think Chambers is *bang on* about catching market transitions and understanding his customers business, *but* his company and Giancarlo do not have the software side down nearly as well as they have routers and switches. To me it was abundantly clear from the “look & feel” of the demo that the interoperability displayed was all in the MS apps. (honestly too bad, because I think MS applications are far from satisfactory and we need some serious competition)

   My experience in the network with a lot of different companies products tells me that Cisco has a L*O*N*G slog to go to become a serious software company. Given their success in hardware it is very difficult to rule them out of anything, but I don’t see the necessary emphasis in their r&D.

   Don’t get me wrong about Chambers. He is a *very* bright and capable leader and a formidable competitor. (I do not need to say that, but I want to be clear that I am not disrespecting him in any way shape or form) I remember Chambers when he was a sales VP at Wang Labs in Lowell Ma and they were all about selling desktop HW. That Wang miss of the market transition to the PC is legendary. I think he remembers this as a personally painful time, and he is loath to repeat it. I think he might see a similar set of events lining up now.

   Anyway, YVMV. Perhaps I have read too much into things and competing at software is not really cisco’s goal after all?

   We shall see.

   August 25th, 2007 at 11:58 am by many

8. Chambers was looking kinda flustered toward the end of the conference About 79 minutes in he actually called Steve Ballmer “Bill” .. LOL

   August 26th, 2007 at 11:39 pm by Art

9. Phil, I watched you in one of those debates at Voicecon with Cisco and I will attest to your victory. But Cisco is a different kind of company than Nortel. Cisco is a company driven more by business vision, using technology as a tactic. Nortel used to be a company driven primarily by technical vision, and was successful at hitting new markets with great portfolios. My concern now is that the technology arm of Nortel has been significantly weakened without a corresponding increase in business leadership. I don’t consider six-sigma production efficiency an adequate replacement for vision and insight.

   John Chambers isn’t religious about how Cisco makes money. The Cisco weaknesses people like to point to are upside for an already amazing company. Cisco is one of a few companies that the markets use to judge the health of the entire technology industry. That’s leadership.

   Nortel, on the other hand, is in a do-or-die struggle to remain relevant. I hope you’re successful because there’s a lot more low-hanging upside in Nortel stock than in Cisco stock. Just do a couple of things right for a couple of quarters in a row and the investor community will hail it as a miracle. Good luck.

   August 31st, 2007 at 5:08 pm by Paul Stevens

10. I agree that a great company is defined by three things, the vision to see those inflection points, the capability to lead in the definition of the inflection and it’s impact, and the tenacity/skill to deliver (technology, marketing, sales, channel, integration, support, etc.) customers the value of the inflection. In late 2005 we looked very closely at the inflection point that Unified Communications would define and concluded that integration with the personal productivity tool set on the desktop for knowledge workers was critical. So after long thought we built the ICA relationship with Microsoft, which has contributed significantly to Nortel redefining our relevance in the market. Over the last 3 months we have been going through the planning process that Mike established when he came into the company. These are a series of quarterly activities that spread the typical November strategy drill over the course of the year. Session 1 happens in Q1 and is about People, Session 2 is Strategy, Session 3 is Multi-generational product planning, and Session 4 is Budget. Quite frankly, I have been very impressed with the quality of changing the annual process to a distributed event. Over the last 3 months (Sessions 2 and 3), one area we have put major focus in is defining the major inflections coming in both networks and communications. My intent is to use some of that thought in some future blog entries. The key to success is understanding how things will change and how you can position to change/transform your market position. The point about Microsoft/IBM versus Cisco is an inflection caused by the changes in the market and the need to increase the value proposition of a current position to retain/increase revenue streams. The key question is whether this creates an opportunity for Nortel to create a differentiated value proposition to the market, resulting in increased share.

    September 6th, 2007 at 12:52 pm by Phil

11. Phil,

    I argue that if you are looking and reacting to what MSFT, IBM or CSCO are doing you are largely (not totally) playing “me too”.

    IMO observing what people/companies like and especially what they *hate* about communications is what provides the opportunity to create a differentiated value proposition and an increase share.

    BTW, I think unified communications is merely a precursor to unified applications.

    September 6th, 2007 at 3:21 pm by many

12. The challenge with Msoft and IBM is that they are coming into this converged world from a different position than Nortel. I think reacting to their view to define what we will do in our world is not “me to”, but rather understanding how to profit from the changes that are coming.
    One story I often cite in this discussion is Wang. How would the world be different today if Wang had embraced the IBM PC and made the Wang software for word processing available on the PC. And what if Wang had bought Lotus and Harvard Graphics and created the Wang Office Suite for Windows? Would Wang be here today with a $10B business? Would that have been a “me-too” strategy of following IBM?

    September 14th, 2007 at 7:47 pm by Phil

13. Phil,

    I am not sure the model you suggest is completely analogous, but point taken. Can’t say what would have happened if An Wang had stayed and not handed the reins over to Fred.

    Digital Equipment had a similar experience and was late to the game with the “rainbow” PC. Top quality H/W with few applications. In fact the rainbow was probably DECs BetaMax to IBMs VHS. Following with a better box, but completely missing the point that the application was what people were using.

    None had the vision of Gates and companies spent a large effort and great resources reacting to his vision. IMO that was the problem.

    I maintain you are not going to build the next big business and capture markets by reacting. I reiterate my comment that focus on the market and user’s likes and hates is by far more important than focus on what the big dogs are doing, because they are struggling to react to the market too.

    Your advantage (if there is one) is agility and timing.

    I am reminded of a new subdivision I watched being built. Along with the subdivision there was the obligatory strip mall. Inconveniently, the closest ATM branch was miles away. In the mall’s parking lot the big dog bank was building a brick and mortar bank slowly over the months. Another bank had purchased an out parcel, but had not even begun to break ground, except for utility connections.

    About two weeks before the big dog brick and mortar bank was completed a rival bank slipped in there with a mobile branch (trailer) with an ATM and took all of the business.

    September 15th, 2007 at 9:47 am by many

14. Phil, the point is that Microsoft and IBM aren’t entering your world, Nortel is entering theirs. To them, Nortel is a tool to solve a niche problem in a broader solution. Communications isn’t the dog, it’s the tail. Both companies will commoditize Nortel’s value as soon as possible. Nortel must find the ‘next big thing’ for growth or you will perish. Selling yesterday’s value to Microsoft and IBM while they figure it out is a short term business. Good luck, my optimism for Nortel is waning.

    September 16th, 2007 at 11:25 pm by Paul Stevens

15. I agree that we MUST define new values to deliver to our customers through this transition. However, the first challenge in a fundamental transofrmation is understanding that it is happeing and that you need to get ahead of the curve. We did the ICA partnership both for driving revenue and value for our customers today, but also for tomorrow. I can asure you that there is significant work going on to define and deliver these solutions for the future. However,we would be foolish to downplay the challenges and that over time the critical value we deliver to our customers will change. The fact that we are focused and not an ostrich hopefully counteracts that waning optimism.

    September 17th, 2007 at 11:47 am by Phil

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